Look east, look sharp

New Delhi has stooped to conquer in its trade pact with Asean

India’s free trade agreement with the Association of South East Asian Nations (Asean) is expected to bump up two-way merchandise exports by $10 billion in the first year of its coming into force. This is in line with the growth witnessed in recent years — from $13 billion in 2003-04 to almost $40 billion in 2007-08 — during which time the two sides were bargaining hard over fairly similar export baskets.

The 4,000 products that will become duty-free by 2016 skirt sectors where fears have been raised, at home and among Asean members, that cheap imports could hurt the local industry.

India began talks with a list of 1,400 items that needed duty protection, it settled for 489, including automobile parts, chemicals and textiles. Produce of plantations, where India and Asean are direct rivals, is farthest off limits.

The tariff reductions India has offered Asean are deeper than it has to other preferential trade partners: once the treaty is fully implemented, 80 per cent of the goods traded will be duty-free. The agreement also has the most lenient rules India has negotiated on third-country wares; imports can claim to originate in Asean if any of its member countries adds a mere 35 per cent value to them.

The soft Indian stance looks beyond merchandise — Asean accounts for 10 per cent of our global trade while India makes up for 2 per cent of theirs — to the bigger prize in services, of which Asean imported $180 billion in 2007. By the time duties are abolished on goods trade, India hopes to stitch up a comprehensive agreement on services, where it has a distinct competitive advantage.

Our Look East policy has a big element of trade diversification built into it. The raft of free trade agreements India is entering into in Asia is an attempt to move away from our excessive dependence on the United States and European Union.

With a combined gross domestic product the size of India’s, our Southeast Asian neighbours provide suitable weight to this process. This pact becomes all the more important and meaningful now because both Asean and India are posting enviable growth rates during a global recession.

Although sub-optimal solutions, regional trade agreements are the best thing going in a world where multilateral trade talks have all but seized up. The lessons taken away from the Asean table ought to influence the much bigger, and hence more complex, free trade treaty

we are negotiating with the European Union, our largest trading partner.